Summary
declining jurisdiction under Declaratory Judgment Act in favor of subsequent breach of contract action filed by employer in federal court
Summary of this case from Knapp v. Depuy Synthes Sales, Inc.Opinion
No. C 01-1009 VRW
May 18, 2001
JUDGMENT [FRCP 58]
This action came on for decision before the court, the Honorable Vaughn R. Walker, District Judge, presiding, and the issues having been duly considered and a decision having been duly rendered.
IT IS ORDERED AND ADJUDGED that defendant JD Edward's motion to dismiss is GRANTED, and defendant's motion to dismiss or stay and motion to transfer and plaintiff Schmitt's motion for summary judgment are DENIED as moot, that plaintiff take nothing, that the action be dismissed on the merits, that judgment is entered in favor of defendant and that defendant recover of plaintiff its costs of action.
ORDER
Before the court are JD Edwards World Solutions Company's motions to dismiss or stay (Doc. #5) and to transfer venue (Doc. #9), and Michael Schmitt's motion for summary judgment (Doc. #12). For the reasons that follow, the court GRANTS JD Edwards' motion to dismiss and DENIES the other motions as moot.
I
Schmitt was employed by JD Edwards from June 1, 1992, to July 31, 2000. From 1997 to 2000, Schmitt worked for JD Edwards in Colorado, most recently as Senior Vice President B2B Commerce. During his employment, Schmitt allegedly entered into three contracts limiting his ability to compete with JD Edwards after he ceased to work for the company. On July 31, 2000, Schmitt was terminated by JD Edwards.
On February 27, 2001, Ariba, Inc., a Mountain View, California corporation, announced in a media release that Ariba had hired Schmitt. Ariba is considered a competitor of JD Edwards under one of the non-compete contracts. On March 6, 2000, JD Edwards notified Schmitt that it would file a breach of contract suit against him the following day in Colorado state court. Olsen Decl. (Doc. #4) at ¶ 4. On March 7, 2000, JD Edwards filed suit against Schmitt. The same day, Schmitt filed a declaratory judgment suit in California state court. Apparently, Schmitt filed his case a few hours before JD Edwards did. Both cases were removed to federal court on March 12, 2001.
II
The court considers first JD Edwards' motion to dismiss or stay. Both parties agree that the California case and the Colorado case raise the same issues between the same parties, although the Colorado claim may be broader. It makes no sense for both courts to adjudicate these cases. Consequently, one of the cases should be stayed or dismissed.
Under the "first to file" rule, "when cases involving the same parties and issues have been filed in two different districts, the second district court has discretion to transfer, stay, or dismiss the second case in the interest of efficiency and judicial economy." Cedar Sinai Medical Center v. Shalala, 125 F.3d 765, 769 (9th Cir. 1997) (citing Alltrade, Inc. v. Uniweld Products, 946 F.2d 622, 625, 628-29 (9th Cir. 1991); Pacesetter Sys. v. Medtronic, Inc., 678 F.2d 93, 94-95 (9th Cir. 1982)); see also James Wm. Moore, Moore's Federal Practice § 57.42 [2][b][i][A] (3d ed) (hereinafter Moore's). When the first case filed is for declaratory judgment, however, the rule may not apply.
Although this case was originally brought in state court, "the question whether to exercise federal jurisdiction to resolve the controversy became a procedural question of federal law" when the case was removed. Golden Eagle Ins. Co. v. Travellers Companies, 103 F.3d 750, 753 (9th Cir. 1996). As a result, the court treats the suit as if it had been brought under the Declaratory Judgment Act, 28 U.S.C. § 2201. Golden Eagle Ins. Co., 103 F.3d at 753. It is within the court's discretion to decline to entertain a case filed under the Declaratory Judgment Act. See Wilton v. Seven Falls Co., 515 U.S. 277, 286-87 (1995). The Wilton Court stated:
Since its inception, the Declaratory Judgment Act has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants. On its face, the statute provides that a court "may declare the rights and other legal relationships of any interested party seeking such declaration."
Id.
If a court is faced with two suits, a first filed declaratory relief action and a subsequent coercive suit filed in a different court, and the court determines that the declaratory suit is a preemptive suit meant to deprive the natural plaintiff of the forum of his choice, the court should dismiss or stay the declaratory suit. Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622, 628 (9th Cir. 1991); Moore's at § 57.42[3]. This prevents forum shopping by a declaratory plaintiff who files suit in anticipation of being sued by a natural plaintiff.
A number of cases have dismissed or stayed a first filed declaratory judgment suit in favor of a subsequent coercive suit. See, e.g., Tempco Electric Heater Corp. v. Omega Engineering, Inc., 819 F.2d 746 (7th Cir. 1998); Essex Group, Inc. v. Cobra Wire Cable, Inc., 100 F. Supp.2d 912 (N.D. Ind. 2000); First Fishery Development Service, Inc. v. Lane Labs USA, Inc., 1997 US Dist LEXIS 11231 (S.D. Cal. 1997); Budget Rent A Car Corp. v. Miljack, Inc., 760 F. Supp. 135 (N.D. Ill. 1991); Great American Ins. Co. v. Houston General Ins. Co., 735 F. Supp. 581 (S.D.N.Y. 1990); Koch Engineering Co., Inc. v. Monsanto Co., 621 F. Supp. 1204 (E.D. Mo. 1985). In all of these cases the court determined that the declaratory plaintiff had filed suit preemptively and thus was not entitled to the benefit of the first to file rule.
Additionally, two of the cases considered the fact that the coercive action was more broad than the declaratory suit. Koch Engineering Co., 621 F. Supp. at 1208 ("This court must also consider which of the two actions will best serve the needs of the parties by providing a comprehensive solution to the entire controversy."); Budget Rent A Car Corp., 760 F. Supp. at 136 ("Here, the better alternative is to allow the Oklahoma action to proceed. The broader relief requested by CRLA in the Oklahoma suit would certainly address the relief sought by Budget in this action.").
Applying these principles to the case at bar, the court concludes that dismissal or a stay is appropriate. Both the California suit and the Colorado suit were filed on March 7, 2001, but Schmidt's suit was filed first by a few hours. The first to file rule, however, does not control in this situation. Schmitt's suit is for declaratory relief and there is substantial evidence that it was filed preemptively. It is undisputed that counsel for JD Edwards informed Schmitt on March 6, 2000, that JD Edwards planned to file suit the next day. Olsen Decl. (Doc. #4) at ¶ 4. The following day, Schmitt filed his suit. The timing raises questions. The court in First Fishery stated:
Moreover, it is telling that Plaintiff filed its action only one day after Defendant informed it that Defendant would file suit in New Jersey, and two days before Defendant actually did so as promised. The swiftness with which Plaintiff reacted to Defendant's ultimatum indicates that, far from seeking to resolve uncertainty and settle legal relations (both of which could have been done in New Jersey), Plaintiff simply wanted to wrest the choice of forum away from the allegedly aggrieved party.
First Fishery, 1997 U.S. Dist LEXIS 11231 at *12.
The same scenario is present here. The timing of Schmitt's suit indicates that he attempted to preempt the filing of the Colorado suit. Admittedly, Schmitt has not chosen a forum unrelated to the dispute. But it is apparent that a declaratory judgment suit was unnecessary. When Schmitt filed suit he knew that the suit by JD Edwards would be sufficient to resolve any legal uncertainty he faced. These factors favor dismissal or a stay.
Additionally, it appears that the Colorado action is the broader of the two cases. The complaint filed by JD Edwards in Colorado alleges two claims based on disclosure of trade secrets in addition to alleging breach of the non-compete contracts. Compare Foy Decl. (Doc. #17), Exh B, Colorado complaint, with Exh. A, California complaint. Schmitt's argument that his claim for "estoppel/waiver" is an independent coercive cause of action must be rejected. Waiver/estoppel is simply one of Schmitt's defenses to a breach of contract claim.
The only real unanswered question is whether to dismiss the case or stay it. Considering when a case should be stayed rather than dismissed, the Ninth Circuit in Allstate stated: "where the first-filed action presents a likelihood of dismissal, the second-filed suit should be stayed, rather than dismissed. Alltrade, 946 F.2d at 628. Schmitt has not argued that the Colorado case is likely to be dismissed. There is no allegation that the Colorado court lacks personal jurisdiction over Schmitt and any motion to dismiss based on the first to file rule should be denied for the reasons discussed above. Consequently, the court concludes that dismissal is appropriate.
The court declines to exercise jurisdiction over Schmitt's declaratory judgment claim. JD Edwards' motion to dismiss (Doc. #5) is therefore GRANTED.
III
The decision by the court to dismiss the action before it in no way precludes the Colorado court from determining that a transfer of the case to this district is warranted under 28 U.S.C. § 1404. That is a determination the Colorado court will make independent of this decision. Because the court has granted JD Edwards' motion to dismiss, the motions to transfer (Doc. #9) and for summary judgment (Doc. #12) are moot and therefore DENIED. The clerk is directed to enter judgment, close the file and terminate all pending motions.
IT IS SO ORDERED.